Case Law Details
Shri Hariram Bhambhani Vs. ACIT (ITAT Mumbai), ITA No.5067/Mum/2010, ITA Nos.5375 & 5423/Mum/2010, Date of pronouncement: 08.08.2012
The relevant facts are that there was a survey operation u/s.133A of the Act on 21.9.2006. During the course of survey, it was noticed that assessee had not accounted some of the sales in the total turnover. The AO has given the question asked and the answer of the assessee at pages 3 & 4 of the assessment order as under:
“Q.No.11. On going through the books of accounts and documents available, it is seen that a whole bunch of challans on account of supplies to M.V.Pooja and M.V.Stephine having have not been reflected in the sales account. Please explain?
Ans: MV Stephen is a vessel owned by our sister concern in Dubai. It has been deployed in Indian water in the year 2005-06. Similarly MV Pooja also belongs to the same concern and this vessel to is being handled by me for ship supplies since last year. I agree to the fact that we have supplied provisions for crew members on both the ships which were around 10 members in each ship. Both the vessels are supply boats for domestic sea faring. Besides the provisions for crew members we have also supplied spares and other consumable as reflected in the challans.
Since both these jobs have begun in the F.Y. 2005-06 the sales on account of this supply were yet to be included in the sales register for reasons like rate to be charged, party to whom the bills should be raised upon etc. However, the issue is now sorted out and the manning agency has clarified that the bills are to be raised on the owners. Being sister concerns, we have not kept a full fledged records of the supply but going by the current rate of about USD 4.5 per crew per day the total amount of provision of supplies for the year comes to 20×4.5×365=32,850 US$. Therefore, a sum of Rs.15,11,100 say Rs.15 lakhs will be offered to tax on account of these sale for F.Y. 2005-06. Besides the provision, we have also supplied spare parts and stores, hardware items, etc for these two boats. Bases on the documents available and my personal experience a sum of Rs.20 lakhs on account of sale of stores, spare and supplies, etc will be sufficient to cover these sales. Therefore, a further amount of Rs.20 lakhs on account of sale of stores and supplies etc, will be offered to tax for F.Y. 2005-06. The total sum of under sales to the two vessels for F.Y. 2005-06 as discussed above and offered to tax comes to Rs.35 lakhs.”
However, the assessee did not declare the additional income in the return of income filed for A.Y. 2006-07. Assessee filed its reply as under:
“Please refer to question No.11 in the statement given by the director wherein it was declared that the sum of Rs.35 lakhs would be offered to tax for F.Y. 2005-06. However, bill amounting to Rs.14,97,970 was raised on 31.3.2006 on M/s. Global Services Middle East for supply of provision time to time on Vesser “MV Pooja 1 & MV Stephanie. Copy of the Sale invoice for same made to M/s. Global Services Middle East for Rs. 14,97,970 is enclosed herewith.
Also sum of Rs.20,00,000 was towards sales in M/s. Global (India) Hospitality Services Pvt Ltd and was wrongly mentioned in declaration given by the director as turnover belonging to Royal Marine Co.
Further, we wish to add that the statement was made by mr Hariram Bhambhani who is a matriculate in vernacular language and is not aware of the intricacies and implications of the Income tax Act and Rules and statement made by him.”
The AO did not accept the contention of assessee. He stated that statement given by the assessee is not on the correct fact that the sales are not accounted in the books of account and whatever is the implication as per Income tax Act, the facts remains that the assessee has not disclosed the sales fully. The AO has further stated that assessee has not retracted his statement. Accordingly, AO concluded that sales of 14,97,970 on account of supply of provision from time to time and sales of Rs.20 lakhs on account of supply of spare items, etc has not been included as disclosed in the statement made by the assessee at the time of survey proceedings. Therefore, he included the total Rs.35 lakhs under the head “income from undisclosed sales”. Being aggrieved, assessee filed appeal before ld CIT(A).
Ld CIT(A) after considering the submissions of assessee has stated that he has examined the survey folders of the AO. Ld CIT(A) has stated that during the course of survey, no unaccounted invoices were impounded. Although there was unaccounted sale bills, which were not recorded in the books of account as per trial balance on the date of survey, but no document was impounded. On the other hand, assessee has argued that it is true that on the date of survey sales amounting to Rs.35,00,000 were not recorded in the books of account as per trial balance on that date. However, later on as per final account, total turnover was shown at Rs.3,27,27,698 by showing net profit of Rs.36,76,872. Therefore, there was no discrepancy in the sales because all sales were recorded in the books of account closed on 31st March as contended by the assessee. Therefore, ld CIT(A) has stated that only statement recorded without any cogent evidence cannot be relied upon. He has further stated that all the sales cannot be treated as income in view of decision of ITAT Mumbai in the case of Shahdilal Sons vs ACIT (IT(ss) A No.296/M/97 dt.25.9.08), wherein, it is held that “no addition can be made merely on the basis of admission made in a statement recorded under section 132(4) without considering surrounding circumstances and evidence to have been uphold to the addition and the assessee cannot be bound by the original declaration made in the statement”. Accordingly, ld CIT(A) held that 4% of net profit taken is income of the assessee. Therefore, ld CIT(A) has sustained a sum of Rs. 1,40,000 and deleted balance amount of Rs.33,60,000. Hence, this appeal by the department.
During the course of hearing, ld D.R. supported the order of AO and submitted that there are unaccounted sales and, therefore, AO was justified to make the total addition of Rs.35 lakhs. However, ld A.R. supported the order of ld CIT(A) and submitted that all the purchases were accounted for and same are not disputed by the He submitted that if the sales are unaccounted, only net profit rate as applied by ld CIT(A) is justified. He relied on the decision of Hon’ble Gujarat High Court in the case of CIT vs. President Industries, 257 ITR 654(Guj) and also the decision of ITAT in the case of Shahdilal Sons (supra).
We have considered submissions of ld representatives of parties and orders of authorities below. We agree that ld CIT(A) is justified to hold that the entire sales which are unaccounted cannot be the undisclosed income of the assessee. It is a fact that department has not disputed that there is unaccounted purchases. Therefore, all the purchases are accounted for. If the sales are unaccounted, which is outside the books of account, only net profit rate should be taken as income of the assessee, as rightly held by ld CIT(A). Therefore, we uphold the order of ld CIT(A) and reject ground of appeal taken by department.
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